Eco says shares sale to finance its portion of offshore oil drilling

-deal brings in French major

Eco Oil and Gas Limited says that there was no “flipping” when it sold a percentage of its shares in the offshore Orinduik Block to French oil and gas company, Total and that it is committed to the holistic development of this country.

“We didn’t “flip” anything to Total (one of the world’s biggest oil super majors). All we did is to sign an option according to which Total will earn 25% stake in the block in return for covering our costs of drilling at least 2-3 exploration wells over the block,” Chief Executive Officer of Eco, Gil Holzman told Stabroek News, via email.

“We do not take the money into the company’s pockets – we actually put it to work and drill at least 2-3 wells offshore your country, in a hope to find some more oil for you that the people of Guyana will benefit from greatly under our Production Sharing agreement with your government,” he added.

In January of 2016, the Government of Guyana, through Minister of Natural Resources, Raphael Trotman, signed a Petroleum Prospecting License and Production Sharing Agreement with the joint venture team of Tullow Guyana B.V. and Eco (Atlantic) Guyana Inc. for a concession of 1801sq. km, called the Orinduik Block, just offshore Guyana.

Gil Holzman

Following the signing, a release from the Ministry of the Presidency disclosed that the agreement entailed a work programme involving a geological and geophysical evaluation which would inform a 3D seismic acquisition, all within the initial 10-year period of the licence.

Last month, Eco announced that its subsidiary, Eco Atlantic (Guy-ana) Inc. (“Eco Guyana”), had entered into an option agreement on its Orinduik Block, with Total E&P Activités Pétrolières, a wholly owned subsidiary of Total SA.

“Pursuant to the Option Agreement, Total will make an immediate payment of US$1,000,000 for the Option (the “Option Fee”), at its sole discretion, to Farm-in to the Orinduik Block for an additional payment in cash of US$12,500,000 to earn the 25% Working Interest. The exercise of the Option must be made within 120 days of completion of processing of the 3D seismic. The survey acquisition was completed on September 5th 2017 (“The Seismic Data Report”) and processing is expected to take 2-3 months. The Option Fee is repayable in the unlikely event that the Seismic Data Report is not provided to Total by 1 June 2019,” a release on the company’s page stated.

“Following exercise by Total of the Option and once the transaction is completed and has received all regulatory approvals, including Government of Guyana approval, the Block Working Interests will be as follows,” it added and listed the percentage makeup of Tullow – 60% (Operator), Total – 25% and Eco Guyana 15%. The statement explained that in the event that the Option is exercised, each party will pay its pro-rata working interest from that date forward.

“With exploratory wells offshore Guyana expected to cost circa US$35 Million, Eco’s participating interest is anticipated to be approximately US$5.25 Million per well. It is therefore projected that this transaction, if fully executed, will thus provide adequate funding to meet Eco’s share of the costs to drill at least two wells on the Orinduik Block as well as recover the costs of the expanded 3D seismic survey,” the statement also pointed out.

Mere months

Recently, Eco came in for strong criticisms from Opposition Leader Bharrat Jagdeo. While not naming Eco, Jagdeo’s Economic Advisor, Peter Ramsaroop, had blasted government for issuing a contract for the acquisition of offshore oil exploration space saying that there is evidence that one was flipped, mere months after signing a contract for its acquisition.

Holzman said that his company was happy for the opportunity to address what he called “unfounded concerns” and which obviously would emanate from “people who have very limited understanding of the Oil and Gas Exploration business.”

He explained that the agreement with the government was signed in January 2016 and contains clear and measurable milestones of exploration stages.

“For example – under the petroleum agreement we are obligated to shoot 1,000 km2 of 3D seismic over the block during 2019. We decided not only to (bring forward) this obligation by two years, but also to willingly increase it by almost X3 the amount and we recently completed a 2,550km2 3D survey over the block that was executed during August and September 2017, two years ahead of time and with triple the obligated cost. For your information – the survey cost was $11m USD (2.3 Billion Guyanese dollars)….” Holzman said.

He said that not only did his company meet the obligations of its contractual agreement with government but it also brought into play another major oil and gas company thus preventing a monopoly of the sector by ExxonMobil.

“We met our obligations and exceeded them triple wise and two years ahead of time, we also potentially brought in a world super major that will introduce yet another global huge company into your country. Exxon is a great company, but leaving the space to only one world super major is probably not the best strategy for your government and your country, risking being engaged with only one super major and a potential monopoly. Your government understands it much better than your readers,” he stated.

And to critics who say that the company never intended to work on the acquired area but use the offshore blocks for price appreciation and then sell for large profits, the company’s CEO says one would only make such assumption if they are ignorant of the industry.

“The money that we will get from Total (note that it is only an option agreement, so only in case they will exercise their option) is 100% allocated to drill (a) few exploration wells over the block and discover oil for the benefit of your country,” he said.

Further, he added, “The critics can only witness the great amount of work we did over the past 18 months since award of the block spending over (US) $15m (3bn Guyanese dollars) to date. No other company, including Exxon (who held their block for a much, much longer period), spent so much money over such a short period of time. One should know the facts before spreading around ungrounded allegations.

In summation, Eco believes that it is a valuable partner to the people of Guyana and this, if background work is done on the company, would be illustrated through its meeting and even tripling of the obligations of their contract agreement “in a world record pace”.

“We managed to optionally bring into the country yet another super major such as Total, thus expediting and increasing our full commitment to your country to explore, spend a lot of money, and drill for more oil for the benefit of your beloved country and its people,” Eco’s CEO asserted.

He believes that instead of being bashed, his company and its partners “should be celebrated for this amazing achievement and our great efforts”.